Law on forced reorganization of branches of certain foreign companies into Russian LLCs.
Federal Law FZ-320 was signed by the President of the Russian Federation on July 14, 2022, on the same day it was officially published on the portal of regulatory legal acts and entered into force. The changes apply only to the branches of some foreign companies engaged in the development of subsoil resources in Russia and owning the gas transmission infrastructure.
There is an exception to this rule - Sakhalin-2, within which liquefied gas is produced on the basis of production sharing agreements. The transfer of the functions of the operator of this project, which until recently was performed by the Sakhalin Energy consortium, to a Russian legal entity was formalized by Decree of the President of the Russian Federation (mainly due to the withdrawal of the British oil and gas company Shell) No. 416 dated June 30, 2022. At the same time, the company's property was nationalized.
FZ-320 amended a number of legislative acts, including the law on privatization, foreign investment, registration of legal entities, concessions. Moreover, government bill No. 1197674-7 has been under consideration in the State Duma since June 2021, and by the second reading on June 29, 2022. it was amended regarding the possibility of converting branches of foreign legal entities.
What the new law provides:
- the possibility of transforming a branch or representative office of a foreign legal entity in the oil and gas industry into a Russian LLC;
- the reorganization procedure is judicial, the decision is made by the arbitration court;
- the transformation is done together with the property, license and owners. During the reorganization, participants and shareholders will retain the same level of rights and control;
- the measure is applied if the parent foreign company interferes with the continuous operation of a branch or representative office, takes actions to liquidate it or prevent the intended use of assets. Specific grounds for conversion may include verbal statements by management to suspend or terminate activities in Russia without sufficient economic reasons, actions to comply with Western sanctions.
Forced reorganization can be carried out in relation to the Russian branch of a foreign legal entity operating in the field of subsoil development and gas transportation if there are a number of signs: the absence of the company's shares on the stock exchange, less than 50 participants and at least 25% of the share of Russian entities. With continued sabotage of the company's activities by foreign owners, their corporate rights in court may be limited.
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